The Yuan Revalued

China pledged over this weekend to make its exchange rate more flexible. The decision to drop the two-year-old informal peg to the US dollar follows heavy pressure by the US and other members of the Group of 20; it was cheered by both the US and its other trading partners. Although, China made it clear that it will not move quickly to revalue its currency, rather be more gradual.

I think the reason China’s decided to have its exchange rate more flexible was more political than economics because the meeting of the G20 will be starting next week and China wants to show good faith. Though I think that the Yuan will not change much with this new position, it is a start. We will see in the coming months how fast and how quickly the Yuan will revalue but either way it will be beneficial for the US and world economies.